Commodities

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Central banks have been trying to force inflation higher. Oil prices are rising but what really could cause an uprising is vanilla bean prices have soared creating a shortage of vanilla. Icecream or chocolate inflation is a scary thought.

Dropped Icecream

We have a problem ....

Vanilla is an important ingredient in favorites from icecream and chocolate to perfume. However there is a good old fashioned commodity squeeze making it harder to find. There are stories of vanilla ice cream being removed from shelves or just not available. Children have been seen crying for days.

The wholesale price of vanilla has reached $500-600 per kilo, 10 years ago it was $50 to $60 per kilo. Like cocoa there is a concentrated supplier, in this case Madagascar. The Economist reports the African island nation supplies 80-85% of the world’s natural vanilla. The French introduced a tropical vine orchard called Bourbon vanilla in the 1800's. The plant was native to Mexico and parts of South America. Vanilla represents 20% of Madagascan exports and brings in about $600m at current prices.

madagascar Vanilla

The problem is vines take three to four years to mature, or two in some cases. Even more difficult thee flowers only open for just one day a year, to ensure pollination it is done by hand. Nine months later (yes jsut like humans) the green beans must be hand-picked when perfectly ripe to optimise their vanillin content (the compound that gives vanilla its flavour). Harvest lasts from May in northern Madagascar to August in the middle after the wet season has brought cyclones or similar heavy storms. From there months of blanching, sweating and gradual drying in the sun are then necessary to produce the vanilla spice. It takes around six hundred hand-pollinated blossoms yield about six kilos of green beans, which convert to one kilo of dried beans.

The Vanilla Cartel, Synthetic and Natural Vanilla

The price of Madagascar’s vanilla (meaning the world's vanilla) was set by the government histroically. Much like Canadian maple syrup it effectively acted as a vanilla cartel with nearby islands Comoros and Réunion.

However, just like in oil and maple syrup buyers went elsewhere or stole the product. In the 1980's buyers started to pick up the cheaper, poorer quality version available e in places like Indonesia. This forced Madagascar to end its price-fixing regime. Witht he higher prices food giants such as Unilever, Mondelez International and Nestlé increased synthetic vanillin use. The synthetic product came from a blend of wood pulp and petroleum.

The price collapsed and many Madagascar vanilla farmers left their farms. Synthetic vanillin had crushed prices and it wasn't until the 'organic' boom that chefs and the public sought the natural product, from there the sqeeze in prices higher flowed. From around 2011 some manufacturers began focusing once more on natural vanilla.

In 2015 Nestlé announced plans to use only natural ingredients in five years, that effectively said everything elase was inferior and competitors like Hershey had to do the same. Demand has therefore surged, and with it prices, remeber how long i takes to grow the fine and the tiny window to pollinate?

Then throw in other challenges like weather,poor crop-security, and of course speculators warehousing inventory then prices are squeezed. There are now added risks, stealing. It has been said a vanillan grower has risks like a coca leaf grower  and one of things they have doing is harvesting the beans early, before they are mature, which reduces the overall volume and quality of the crop.

New crops will kick in over the enxt few years and investors will enter the fray to bring down prices in time, but from where is the question.

Source: The Economist, 

From a sunburnt country

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